Fixing the Asbestos Mess: The Senate's Reform Needs Reforming

Asbestos. It is the
basis for the longest-running mass tort litigation in U.S. history,
as well as the most expensive. Since the late 1960s, some 850,000
claim­ants have sued for asbestos-related injuries. The
liti­gation has cost some $70 billion and 60,000 jobs, but
little has gone to the truly injured. Lawyers and litiga­tion
costs have consumed almost 60 percent of resources expended, and
much of the rest has gone to claimants without real impairments.
Yet the lawsuits are still coming, with up to $200 billion in
additional claims on the horizon.

This week, the
Senate will take up legislation aimed at closing this longest of
long-running litiga­tion dramas. The Fairness in Asbestos
Injury Resolu­tion (FAIR) Act of 2005 (S. 852), sponsored by
Senator Arlen Specter (R-PA), is intended to take asbestos
litigation out of the courts and place it in the hands of the
executive branch.

The concept of
replacing sprawling and unfair law­suits with a simplified
compensation system adminis­tered by the U.S. Department of
Labor is appealing on the basis of efficiency. However, if done
poorly, it may also set a dangerous precedent and serve as a
blue­print for turning other judicial issues into
entitle­ments. Moreover, the system outlined by S. 852 is
flawed, allowing claims by individuals who were not wrongly injured
by asbestos to dissipate the resources available, threatening the
viability of the compensa­tion system that it
establishes.

The
History of Asbestos Litigation

Asbestos was long
considered a "magic mineral" because of its ability to resist heat.
It was used for nearly 1,000 years in countless ways-in home and
office insulation, lining for automobile brakes, and even
flame-retardant hulls for ships.[1] Yet pro­longed
exposure to asbestos dust fibers has long been known to cause
asbestosis, a disease of the lungs. In the 1960s, asbestos was also
linked to cancer, including mesothelioma, a cancer of the lung
lining.

The first
injury-related lawsuits against asbestos manufacturers were brought
in the late 1960s. These lawsuits accelerated in 1973 when the
courts applied strict liability rules to asbestos, meaning that
manufacturers could be found liable without a showing of
negligence.[2] As the number of cases mounted,
the courts began to chip away at liability rules by lowering
requirements to prove proximate cause for injuries and by
aggregating cases.

One could have
predicted that weak evidentiary standards for cause and negligible
limits on liability would create a cottage industry of lawsuit
abuse. By the mid-1980s, asbestos manufacturing had virtu­ally
ceased, but manufacturing asbestos lawsuits had become big
business.

As described by
Lester Brickman of the Benjamin Cardozo School of Law, trial
lawyers actively recruited plaintiffs who were usually unaware of
any injury and had no symptoms and sent them to carefully chosen
doctors who could be counted on to diagnose x-ray readings as
asbestos-related.[3] One million individuals may have
been screened during the past 20 years for asbestos injuries as
part of these recruitment efforts. Moreover, plaintiffs' attorneys
soon learned which jurisdictions would be most favorable toward
asbestos claims and grav­itated to those jurisdictions. "[B]y
the mid-to-late 1980s, most of the lawsuits being filed were on
behalf of claimants with little or no injury or proof of
substantial exposure to products sold by the companies they were
suing."[4]

The results have
been devastating. In all, over 850,000 individuals have filed
lawsuits against nearly 8,400 firms.[5] As early as 1982,
Johns-Man­ville, the largest asbestos manufacturer, was forced
to declare bankruptcy due to the flood of lawsuits against it.
Johns-Manville has been followed by some 70 other firms, many of
which were only tan­gentially related to asbestos.[6] The impact on the economy has
been substantial, highlighted by the loss of an estimated 60,000
jobs.[7] Ironically, the judicial chaos
has ultimately hurt legitimate claim­ants as resources have
gone to pay lawyers and bogus claims.

The
FAIR Act

The legislation
being considered by the Senate (S. 852) would largely replace
asbestos litigation with an administrative system run by the
Depart­ment of Labor. Compensation would be paid from a new
trust fund on a no-fault basis to claimants who meet specified
eligibility criteria, which are divided into nine disease levels,
from asbestosis without impairment to terminal cancer. Claimants in
the lowest disease level would receive free med­ical monitoring
of their condition, while those with terminal mesothelioma would
receive $1.1 million.

The bill sets
specific criteria-which vary by dis­ease level-for a claim to
be verified, such as an in-person physical exam and diagnosis by a
board-certified pathologist. Attorney fees, which have been
responsible for so much of the asbestos litiga­tion costs,
would be capped at 5 percent of awards.

Firms that have been
sued for asbestos injuries, as well as insurers and bankruptcy
trusts, would be assessed $140 billion in fees over the life of the
pro­gram to finance the trust fund. Corporate
contribu­tions would be based on a number of factors, including
prior defense costs and company reve­nue. Insurer assessments
would be determined by a special commission.

Improvements
Needed

Under the
administrative system envisioned by S. 852, resolution of claims
would be streamlined, reducing the enormous transaction costs that
now eat up so much of the available funds. The estab­lished
criteria would put some limits on who can make claims and under
what circumstances. Per­haps most important, the bill reduces
the uncer­tainty surrounding asbestos liability, allowing
businesses to plan and invest without fear of a financially
catastrophic lawsuit.

However, as
currently written, S. 852 is flawed. Despite the criteria that it
establishes, it does not ensure that only those individuals who are
injured due to wrongful exposure to asbestos are compen­sated.
Among the problems are:

Burden of proof of
exposure.Under the
cur­rent bill, claimants would not qualify for bene­fits
unless they were actually exposed to asbestos. The degree of
exposure necessary to justify a claim would vary depending on
occu­pation and other factors. However, Section 121 of the bill
allows claimants to meet this require­ment merely by filing an
affidavit saying that they have been exposed. This opens the
pro­gram to abuse. Instead, claimants should be required to
provide some minimal evidence of asbestos exposure (such as pay
stubs or affida­vits from third parties).

Exceptional claims.A key part of the bill is the
establishment of specific medical criteria (i.e., specific evidence
of injury) to be met before compensation is made. However, Section
121(g) would allow claimants who do not meet these criteria to file
"exceptional claims," which are submitted to a panel of physicians.
This sizeable loophole defeats the purpose of estab­lishing
clear standards, thereby undermining the trust fund.

Compensation for conditions not
related to asbestos.The bill's nine levels of compensation
include payments for types of cancer that have not been clearly
shown to be related to asbestos exposure. Compensation from the
asbestos trust fund should be available only for injuries caused by
asbestos.

Automatic payment of
claims.If the
Depart­ment of Labor does not make a decision on a claim within
180 days, the claim is automati­cally paid per Section
114(c) of the legislation. This is intended to ensure that claims
are resolved expeditiously. However, especially in light of the
high volume of claims expected ini­tially, the inevitable
result would be payment of thousands of unmerited claims. It would
be better to presume that a claim is denied if no explicit
decision is made within the allotted time, followed by
administrative and, if neces­sary, appellate court
reviews.

Naturally occurring
asbestos.Section
121(g) (10) allows individuals exposed to naturally occurring
asbestos to receive compensation if approved under the "exceptional
claims" provi­sion. However, the purpose of the bill should be
to provide compensation for those who are wrongfully exposed to
asbestos by others. There is no justification for using asbestos
trust funds for injuries caused by nature itself that have nothing
to do with the defendants paying into the fund.

Special treatment for specific
communities.The bill
provides special treatment for residents in and near Libby,
Montana, the site of a major asbestos-related mine. The bill sets a
lower standard of proof for Libby residents and guar­antees
awards above what other claimants would receive for the same
injuries. Such a carve-out based on where claimants live is
fun­damentally unfair and possibly unconstitu­tional. Libby
residents who have been wrongfully injured by asbestos should be
able to pursue their claims under the same rules that apply to
others.

Among other
problems, the additional costs due to these provisions are likely
to strain the financial integrity of the asbestos trust fund. As a
result, it is very likely that the fund will not prove to be
finan­cially viable. For instance, the Congressional
Bud­get Office was able to give the proposal only a
noncommittal assessment, concluding ambigu­ously that the fund
"might or might not have ade­quate resources to pay all valid
claims."[8]

More alarming is a
recent study that concluded that the fund would go bankrupt within
three years.[9] If that were to happen, under
the terms of S. 852, asbes­tos claims would then go back to the
courts, resuming the litigation wars. Alternatively, Congress would
be tempted to fund the shortfall with taxpayer dollars or with even
higher assessments on defendants. Each of these unattractive
options would constitute a failure of this asbestos
"solution."

To avoid this
result, the reform plan must be reformed. At a minimum, it must
ensure-through stricter eligibility and evidentiary standards-that
only claimants who have been wrongfully harmed by asbestos exposure
are compensated.

Even with such
changes, however, the trust fund approach may be problematic. Any
trust fund, in effect, transforms asbestos compensation into a
federal entitlement. Once established, such entitle­ment
systems tend to grow and expand beyond all projections. Perhaps
worse, the transformation of these tort claims into entitlement
claims sets a potentially dangerous precedent for other, less
exceptional judicial issues.

A better alternative
might be to reform the legal system itself, ensuring that
reasonable rules of lia­bility are imposed and followed.
Several states, including Texas, have already adopted tort
reforms.[10] In the House of
Representatives, Repre­sentative Chris Cannon (R-UT) has
offered a bill (H.R.1957) that would implement such reforms on a
national basis.

Conclusion

The endless
litigation over asbestos injuries is unprecedented in U.S. legal
history-spanning decades, driving dozens of companies out of
busi­ness, and destroying tens of thousands of jobs. It would
be inaccurate to say that nobody wins, because many trial lawyers
have clearly benefited from the flawed process.

Through countless
decisions, the asbestos prob­lem has been badly mishandled,
with results that are not only inefficient, but also unjust. The
chal­lenge for policymakers is to reform the system in a way
that solves today's problems without creating new ones.

Regrettably, the
Senate bill as written may end up replacing one failed system with
another. Lawmak­ers can still remedy the problem if they focus
on rules that will aid those truly wronged and nothing more.
If they can do this, asbestos litigation reform could establish a
positive precedent rather than another-albeit different-type of
failure.

James Gattuso is a
Senior Research Fellow in Regulatory Policy in the Thomas A. Roe
Institute for Economic Policy Studies, and Tim
Kane, Ph.D., is Bradley Fellow in Labor Policy in the Center
for Data Analysis, at The Heritage Foundation.

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Asbestos. It is the basis for the longest-running mass tortlitigation in U.S. history, as well as the most expensive. Sincethe late 1960s, some 850,000 claim­ants have sued forasbestos-related injuries. The liti­gation has cost some $70billion and 60,000 jobs, but little has gone to the truly injured.Lawyers and litiga­tion costs have consumed almost 60 percentof resources expended, and much of the rest has gone to claimantswithout real impairments. Yet the lawsuits are still coming, withup to $200 billion in additional claims on the horizon.

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